FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended December 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-17757
W-W CAPITAL CORPORATION
-----------------------
(exact name of Registrant as specified in its charter)
Nevada 93-0967457
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer Identi-
incorporation or organization) fication Number)
3500 JFK Parkway Suite 202 Ft. Collins, CO 80525
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(Address of principal executive offices, including zip code)
(970) 207-1100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes _X_ No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether Registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes ___ No ___ NOT APPLICABLE _X_
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding
- ------------------- at May 30, 2002
Common stock ----------------------------
$0.01 Par Value 2,008,164
W-W CAPITAL CORPORATION
Index
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PART I FINANCIAL INFORMATION PAGE NO.
- ------ --------------------- --------
Item 1 Balance Sheets
- ------ December 31, 2001 and June 30, 2001 1
Statements of Operations
Three and Six Months Ended
December 31, 2001 and 2000 3
Statements of Cash Flows
Six Months Ended
December 31, 2001 and 2000 5
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis
- ------ of Financial Condition and Results
of Operations 9
PART II OTHER INFORMATION
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Item 1 LEGAL PROCEEDINGS 11
- ------
Item 2 CHANGES IN SECURITIES 11
- ------
Item 3 DEFAULTS UPON SENIOR SECURITIES 11
- ------
Item 4 SUBMISSION OF MATTERS TO VOTE OF
- ------
SECURITY HOLDERS 11
Item 5 OTHER INFORMATION 11
- ------
Item 6 EXHIBITS AND REPORT ON FORM 8-K 11
- ------
SIGNATURES 12
Part 1-FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
W-W CAPITAL CORPORATION
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Balance Sheets
December 31, June 30,
2001 2001
---- ----
(Unaudited)
Assets
- ------
Current assets:
Cash 169,814 $ 216,473
----------- -----------
Trade accounts receivable 1,850,783 1,582,584
Less allowance for doubtful accounts (55,000) (35,000)
----------- -----------
Net accounts receivable 1,795,783 1,547,584
----------- -----------
Accounts receivable, other 65,692 67,975
Inventories:
Raw materials 568,082 658,943
Work-in-process 275,167 436,237
Finished goods 739,380 634,142
----------- -----------
Total inventories 1,582,629 1,729,322
----------- -----------
Prepaid expenses 90,710 50,168
Current portion of notes receivable
from related parties 554 554
Deferred income tax asset 249,100 150,100
----------- -----------
Total current assets 3,954,282 3,762,176
----------- -----------
Property and equipment, at cost 4,295,087 4,278,694
Less accumulated depreciation
and amortization (2,045,655) (1,927,259)
----------- -----------
Net property and equipment 2,249,432 2,351,435
----------- -----------
Other Assets:
Long-term notes receivable from
related parties, net of current portion 21,073 21,073
Loan acquisition costs, net of
accumulated amortization of $1,025
at December 31, 2001 and $43,574
at June 30, 2001 39,975 6,139
Equipment deposits 175,000 175,000
Other assets 41,929 6,987
----------- -----------
Total other assets 277,977 209,199
----------- -----------
TOTAL ASSETS $ 6,481,691 $ 6,322,810
=========== ===========
(Continued on following page)
See accompanying notes to financial statements.
1
W-W CAPITAL CORPORATION
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Balance Sheets, Continued
December 31, June 30,
2001 2001
---- ----
(Unaudited)
Liabilities
Current Liabilities:
Accounts payable $ 1,573,572 $ 1,423,041
Accrued property taxes 20,332 15,950
Accrued payroll and related taxes 204,005 177,474
Accrued interest payable 107,349 62,361
Current portion of long-term notes payable 176,000 220,000
Current portion of capital lease obligations 73,000 65,000
Other current liabilities 90,376 121,804
----------- -----------
Total current liabilities 2,244,634 2,085,630
----------- -----------
Other Liabilities:
Long-term notes payable, net of current portion 2,996,464 2,806,268
Long-term capital lease obligations, net
of current portion 1,241,273 1,281,397
Deferred income tax liability 155,100 155,100
Negative goodwill, net of accumulated
amortization of $4,295 December 31,
2001, and $3,124 at June 30, 2001 42,558 43,729
----------- -----------
Total other liabilities 4,435,395 4,286,494
----------- -----------
TOTAL LIABILITIES 6,680,029 6,372,124
----------- -----------
Stockholders' Deficit
Preferred stock: $10.00 par value,
400,000 shares authorized -- --
Common stock, $0.01 par value, 15,000,000 shares
authorized; 5,553,827 shares issued and outstanding
at December 31, 2001 and June 30, 2001 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (680,294) (531,270)
----------- -----------
2,680,777 2,829,801
Less 3,545,663 shares of treasury stock at cost (2,879,115) (2,879,115)
----------- -----------
NET STOCKHOLDERS' DEFICIT (198,338) (49,314)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 6,481,691 $ 6,322,810
=========== ===========
See accompanying notes to financial statements.
2
W-W CAPITAL CORPORATION
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Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31,
----------- ------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 3,009,617 $ 3,321,085 $ 5,826,351 $ 6,903,227
Cost of goods sold 2,433,337 2,745,847 4,663,836 5,629,133
----------- ----------- ----------- -----------
Gross profit 576,280 575,238 1,162,515 1,274,094
----------- ----------- ----------- -----------
Operating expenses:
Selling expenses 284,619 256,464 566,282 482,877
General and administrative expenses 349,519 358,758 689,284 674,037
----------- ----------- ----------- -----------
Total operating expenses 634,138 615,222 1,255,566 1,156,914
----------- ----------- ----------- -----------
Operating earnings (loss) (57,858) (39,984) (93,051) 117,180
----------- ----------- ----------- -----------
Other income (expenses):
Interest income 31 7,506 5,785 15,326
Interest expense (84,236) (55,794) (181,934) (113,262)
Gain on sale of assets 4,700 10,500 4,700 37,800
Other income (expense), net 15,652 16,967 16,476 18,897
----------- ----------- ----------- -----------
Total other income (expense) (63,853) (20,821) (154,973) (41,239)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (121,711) (60,805) (248,024) 75,941
Income tax benefit (expense) from continuing
operations 48,000 16,000 99,000 (24,000)
----------- ----------- ----------- -----------
Net earnings (loss) from continuing operations (73,711) (44,805) (149,024) 51,941
----------- ----------- ----------- -----------
Discontinued operations:
Earnings from operations of Titan Industries
disposed of (net of income taxes of $7,000
at three months ended December 31, 2000 and
$59,000 at six months ended December 31, 2000) -- 599 -- 88,219
Estimated loss on disposal of Titan Industries -- (50,000) -- (80,000)
----------- ----------- ----------- -----------
Net earnings (loss) from discontinued
operations -- (49,401) -- 8,219
----------- ----------- ----------- -----------
Net earnings (loss) $ (73,711) $ (94,206) $ (149,024) $ 60,160
=========== =========== =========== ===========
(Continued on following page)
See accompanying notes to financial statements.
3
W-W CAPITAL CORPORATION
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Statements of Operations, Continued
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31,
----------- ------------
2001 2000 2001 2000
---- ---- ---- ----
Earnings per common share:
Basic
Earnings (loss) from continuing
operations $ (0.04) $ (0.01)$ (0.07) $ 0.01
Earnings from discontinued
operations 0.00 0.00 0.00 0.02
Estimated loss on disposal of Titan
Industries 0.00 (0.01) 0.00 (0.02)
------------- ------------- ------------- -------------
Net earnings (loss) $ (0.04) $ (0.02) $ (0.07) $ 0.01
============= ============= ============= =============
Weighted average number of common
shares 2,008,164 5,420,397 2,008,164 5,420,397
Diluted
Earnings (loss) from continuing
operations $ (0.04) $ (0.01) $ (0.07) $ 0.01
Earnings from discontinued
operations 0.00 0.00 0.00 0.02
Estimated loss on disposal of Titan
Industries 0.00 (0.01) 0.00 (0.02)
------------- ------------- ------------- -------------
Net earnings (loss) $ (0.04) $ (0.02) $ (0.07) $ 0.01
============= ============= ============= =============
Weighted average number of common
shares 2,008,164 5,420,397 2,008,164 5,420,397
See accompanying notes to financial statements.
4
W-W CAPITAL CORPORATION
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Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
------------
2001 2000
---- ----
Cash flows from operating activities:
Net earnings (loss) $(149,024) $ 60,160
Adjustments to reconcile net earnings
to net cash used in operating activities:
Earnings from discontinued operations -- (43,511)
Depreciation and amortization 125,560 97,111
Gain on sale of property and equipment (4,700) (37,800)
Provision for doubtful accounts receivable 39,784 725
Amortization of negative goodwill (1,171) (1,171)
Change in assets and liabilities:
Accounts receivable (287,983) (33,656)
Inventories 146,693 (126,487)
Other current and non-current assets (143,658) (30,604)
Accounts payable 150,531 88,920
Accrued expenses and other current liabilities 44,473 21,838
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Net cash used in operating activities (79,495) (4,475)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 4,700 37,800
Purchase of property and equipment (16,393) (141,504)
Proceeds from stockholders' notes receivable -- 507
--------- ---------
Net cash used in investing activities $ (11,693) $(103,197)
--------- ---------
(Continued on following page)
See accompanying notes to financial statements
5
W-W CAPITAL CORPORATION
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Statements of Cash Flows, Continued
(Unaudited)
Six Months Ended
December 31,
------------
2001 2000
---- ----
Cash flows from financing activities:
Payments on notes payable, financial
institutions and government entities $(5,398,097) $(6,220,691)
Proceeds from notes payable 5,515,750 6,335,821
Payments on capital leases (32,124) (11,120)
Payment of loan acquisition costs (41,000) --
----------- -----------
Net cash provided by financing
activities 44,529 104,010
----------- -----------
Net decrease in cash (46,659) (3,662)
Cash at beginning of period 216,473 313,898
----------- -----------
Cash at end of period $ 169,814 $ 310,236
=========== ===========
Supplemental disclosures of cash flow for continuing operations:
Cash paid during the period for interest $ 136,946 $ 108,614
Installment loans to acquire property and equipment $ -- $ 40,397
Installment loans used for deposits on purchase
of property and equipment $ -- $ 175,000
Cash paid during the period for income taxes $ -- $ 46,293
Installment loans to acquire rental property $ 28,543 $ --
See accompanying notes to financial statements.
6
W-W CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements include the accounts of
W-W Capital Corporation (the Company) and its three wholly-owned subsidiaries
W-W Manufacturing Co., Inc., Titan Industries, Inc., and Eagle Enterprises, Inc.
All significant intercompany accounts and transactions have been eliminated.
In January 2001, the Company sold its water and environmental product
segment, Titan Industries, Inc.. The Company's consolidated financial statements
have been restated to reflect the segment as a discontinued operation for all
periods presented.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. They do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and changes in cash
flows in conformity with generally accepted accounting principles for full-year
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to W-W Capital
Corporation's financial statements included in its Annual Report on Form 10-K
for the year ended June 30, 2001. In the opinion of management, all adjustments
(consisting of normal recurring accrual basis adjustments) considered necessary
for a fair presentation have been reflected in the accompanying financial
statements. Operating results for the three and six month periods ended December
31, 2001, are not necessarily indicative of the result that may be expected for
the year ended June 30, 2002.
NOTE 2 - NET BASIC EARNINGS PER SHARE
- -------------------------------------
The net basic earnings (loss) per share amount included in the
accompanying statement of operations have been computed using the
weighted-average number of shares of common stock outstanding and the dilutive
effect, if any, of common stock equivalents existing during the applicable three
and six month periods.
NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern.
The Company has incurred losses from operations of $149,024 and
$247,455 for the six months ended December 31, 2001 and the year ended June 30,
2001, respectively. Additionally, the Company has a net stockholders' deficit of
$198,338 at December 31, 2001.
7
NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES (continued)
- ----------------------------------------------------
The Company relies on revolving notes payable from a financial
institution for its working capital and has amended the associated credit and
security agreements in May 2002 to modify the loan covenants among other things.
Covenants beyond June 30, 2002 have not yet been established. The ability of the
Company to continue as a going concern is dependent on meeting the requirements
of its financing agreements in the near term.
NOTE 4 - RELATED PARTY TRANSACTION
- ----------------------------------
The Company has a number of related party transactions. See the
footnotes to W-W Capital Corporation financial statements for the year ended
June 30, 2001, included in its Annual Report on Form 10-K for the nature and
type of related party transactions.
A summary of the related party transactions that effect the Company's
statement of operations for the three and six months ended December 31, 2001 and
2000, respectively, is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
Transactions with ------------ ------------
- -----------------
related parties 2001 2000 2001 2000
- --------------- ---- ---- ---- ----
Rent expense $ 1,000 $ 15,000 $ 1,500 $ 30,000
NOTE 5 - DISCONTINUED OPERATION
- -------------------------------
On January 5, 2001, the Shareholders of the Company voted to sell its
water and environmental product segment, Titan Industries, Inc., to certain
shareholders of the Company in exchange for 3,390,399 shares, or approximately
61.2%, of the common stock of the Company. In addition to giving up its interest
in Titan, the Company also contributed to the capital of Titan the sum of
$850,000 used to equalize the value of the consideration being exchanged. The
sale was accounted for as a treasury stock transaction and the estimated loss on
disposal was the result of professional fees attributable to the transaction.
The accompanying financial statements have been restated to conform to
discontinued operations treatment for all historical periods presented.
The operating results of the discontinued operation for the three and
six month periods ended December 31, 2000 were as follows:
Three Month Six Month
Period Period
------ ------
Net Sales $2,168,981 $4,699,336
========== ==========
Earnings before provision for income taxes $ 7,599 $ 147,219
Provision for income taxes 7,000 59,000
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Earnings from discontinued operations $ 599 $ 88,219
========== ==========
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations.
---------------
The business of the Company is carried on within two segments by a
number of operating units. The livestock handling equipment segment is composed
of W-W Manufacturing (W-W Manufacturing), Eagle Enterprises (Eagle) and W-W Paul
Scales (Paul), and the water and environmental product segment is represented by
Titan Industries (Titan). On January 5, 2001, the Shareholders of the Company
voted to sell Titan to certain shareholders of the Company. The accompanying
financial statements, as well as management's discussion and analysis of
financial condition and results of operations, have been restated to reflect
discontinued operations treatment for all historical periods presented.
(A) Analysis of Results of Operations
---------------------------------
The Company had a net loss from continuing operations of $149,024 for
the six months ended December 31, 2001, as compared to net earnings of $51,941
for the same period of 2000. For the three month period ended December 31, 2001,
the Company incurred a loss of $73,711 as compared to $44,805 for the same
period of 2000. This loss of earnings was attributable to current economic
conditions felt throughout the United States, the normal slow selling periods
during the winter months and holiday season as well as transition costs
associated with the opening of the new plant in Thomas, Oklahoma.
Sales from continuing operations decreased to $5,826,351 for the six
months ended December 31, 2001, compared to $6,903,227 for 2000. The decrease of
$1,076,876 is attributable to a general slow down in the economy as well as the
terrorist attacks of September 11, 2001. The decrease in sales took place in all
three locations. The Thomas, Oklahoma plant had a drop in sales of $209,688
while the Livingston, Tennessee and Duncan, Oklahoma plants had a reduction in
sales of $428,544 and $438,644 respectively. The Company continues to make
improvements to various existing products and is reviewing new products to be
introduced in future quarters. This will help the Company gain acceptance with
new customers and move into markets not normally serviced. The Company is also
involved in several projects, which includes special sales to expo centers,
fairs and livestock shows. Based on present conditions, the Company anticipates
sales to increase significantly during the second half of fiscal 2002.
Gross margins from continuing operations increased for the six months
ended December 31, 2001 to 20.0% as compared to 18.5% in 2000. The increased
margins are the result of efficiencies felt in labor, shipping and manufacturing
costs due to the opening of the new plant in Thomas, Oklahoma during April 2001.
The Company continues to seek manufacturing improvements in cost reductions as
well as price adjustments and system analysis. This continual fine-tuning and
adjustment has allowed to Company to increase the gross margin percentage while
experiencing a slowdown in sales. Management expects continued improvements in
gross margins throughout 2002.
Selling expenses from continuing operations increased for the six
months ended December 31, 2001 as a percentage of sales from 7.0% in 2000 to
9.7% in 2001. Total dollars expended for selling expense increased $83,405
during the six month period ended December 31, 2001. The increase is a
reflection of the Company's aggressive pursuit of new markets and expansion of
its distributor/dealer base. Through the balance of the fiscal year, management
will continue to evaluate selling expense to find ways to keep costs in line as
a percentage of sales, as we continue to grow markets and market share with new
products.
9
General and administrative expense from continuing operations increased
for the six months ended December 31, 2001 as a percentage of sales to 11.8% as
compared to 9.8% for the same period of 2000. Overall dollars spent on general
and administrative expenses increased $15,247 for the six months ended December
31, 2001 as compared to the same period of 2000. The Company will continue to
evaluate ways to lower general and administrative expense through the use of
centralization, job realignment, and line-by-line expense reductions. The
Company also believes that general and administrative expenses will also
decrease due to the finalization of several business structure changes completed
during the year.
Interest expense from continuing operations increased for the six
months ended December 31, 2001 to $181,934 from $113,262 for the same period of
2000. Interest expense from continuing operations for the three months ended
December 31, 2001 increased to $84,236 from $55,794 for the same three-month
period of 2000. This increase is due to heavy borrowings on the revolving lines
to support the Titan split-off and manufacturing plant move as well as
experiencing a slow down in sales due to economic conditions felt throughout the
country. As profits and cash flow increase, the Company plans to reduce debt,
thereby reducing overall interest expense.
(B) Liquidity and Capital Resources
-------------------------------
The Company's principal sources of liquidity are borrowings under its
credit facilities and from internally generated funds. The Company used cash in
investing activities for the purchase of new property and equipment. Overall
purchases of property and equipment decreased for the six months ended December
31, 2001 to $16,393 from $141,504 for the same six months ended December 31,
2000. The decreased purchases are a result of the Company providing equipment
for the new Thomas plant during the fiscal year ended June 30, 2001. Cash used
in financing activities resulted in an increase in borrowings of $44,529 for the
six months ended December 31, 2001. With the decrease in sales growth, the
Company used its revolving lines extensively to carry the inventory and accounts
receivable balances as well as pay for the plant move to Thomas, Oklahoma.
During the three months ended December 31, 2001 the Company decreased borrowings
$205,600, and the Company anticipates overall debt to steadily decline over the
balance of fiscal 2002.
Even though the United States economy is recovering from a state of
recession and current worldwide conditions are uncertain, the Company feels that
it will improve in both sales volume and operating earnings throughout fiscal
2002. The Company also believes that significant benefits will be realized
because of the move to Thomas, Oklahoma through fiscal 2002 and thereafter. With
increased working capital and lines of credit, the Company feels it has an
adequate supply of liquidity to meet its current obligations.
10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not Applicable
ITEM 2. CHANGES IN SECURITIES
---------------------
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not Applicable
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------
Not Applicable
ITEM 5. OTHER INFORMATION
-----------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Not Applicable
11
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
W W CAPITAL CORPORATION
(Registrant)
Dated: May 30, 2002 By: /s/ Steve D. Zamzow
------------------------------------
Steve D. Zamzow, President & CEO
Dated: May 30, 2002 By:/s/ Mike Dick
------------------------------------
Mike Dick, Controller
12